For Thursday, Jul 28, the market forecast is uncertain




Technical Comment:

The market has closed down for the past three days, with Monday and Tuesday on higher volume than the previous day.  This type of action typically precedes further downward action, although a “decline” pattern has not yet developed.  The “uncertain” signal today was triggered by the stop-loss algorithm.  If the market rebounds upward significantly tomorrow, our forecast could easily revert back to “growth”.  As we noted in the comments on 7/19 last week, our forecasting could experience numerous changes between “uncertain” and “growth” if the up-and-down action continues.

Subjective Comment:

The uncertainty regarding the debt ceiling is likely the cause for the market volatility.  Adding to the overall situation is the threat of downgrades on Federal debt by various rating agencies.  A downgrade could trigger a lot of cash movement as various investment and money market funds readjust their holdings.  The growth in the US money supply continues to suggest the US stock market should rally based on the economics of Austrian Business Cycle Theory.  The money supply in China and in the Euro zone continue to show slowing growth rates, which suggests stocks in China and Europe should be declining in the near future.

Our official forecast is “uncertain”, and we recommend holding cash.  Avoid money market funds as a “cash equivalent” right now.  The uncertainty on Federal debt ratings and money market fund exposure to European debt creates unnecessary risk in money market funds.  If you have invested in an unleveraged index fund that tracks the US Market, you might consider holding through tomorrow’s market in order to avoid unnecessary in-and-out trades should our forecast return to “growth”.  If you are in a leveraged fund tied to US Markets, we recommend selling to protect against further downside risk.

Once the debt ceiling is lifted, market uncertainty should clear and the growing US money supply should resume its upward influence on stocks.  Our forecast will continue to be updated every day, but you might consider holding a cash position until the debt ceiling issue is resolved.

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